Q6: The key here is that Cammie is getting a ‘fellowship’ which may not qualify as income.
Cammie says:
“The CPA firm that does my taxes told me this. It’s not considered ‘income’ but a fellowship”

That seems straight forward the CPA told you that you’re not eligible for a Roth IRA.

IRS publication 970 says:

“You can set up and make contributions to an IRA if you receive taxable compensation. Under this rule, a taxable scholarship or fellowship is compensation ONLY if it is shown in box 1 of your Form W-2, Wage and Tax Statement.” (I put only in all caps for emphasis)

It is only because they are aware of what Katie’s parents are planning to do (which could change) that this is an issue.

Without keeping track on all potential inheritance streams that could ever come our childrens’ way (haha!) and adjust for them periodically, it doesn’t make sense to make decisions on information that changes all the time and is also incomplete (eg old Aunt Agatha decides to leave one of the children $10k because they’re her favorite etc.)

It’s all so up in the air that I really can only see equality as an option.

Firstly I understand Katie’s parents decision. At the present time, why would they want to leave money to the other children?

Given this, I still feel very uncomfortable with anything other than an equal split amongst all the children by the two parents concerned. I would not, under any circumstances, try to adjust this on the basis that two of the children MIGHT receive a large inheritance from Katie’s parents.

Nothing in life is certain and to plan otherwise in such a sensitive area is illogical and unfair on the children in question, in my opinion.

Also, there has been no mention of likely inheritance from his side of the family. It would not be unreasonable for Katie’s husbands parents to exclude at least one of their children from their will (Katie’s first son: adjust for that too?)

Finally, I can see the husband’s point of view that the proposal mentioned is unfair, on some of the children. Is the answer really to try to balance this out (and is that really possible?) by also being unfair, on some of the (other) children? I really don’t think so. All it could do is cause resentment.

Technically, as I suspect you know, the estate and gift tax is imposed on the estate and not on the recipient. If the inheritance were taxed as income to the recipient, it would be subject to the recipient’s marginal tax rate and the recipient’s deductions, and it would be difficult to apply rates like the 55% top rate (effective at the level of even relatively small estates)that existed before the Bush tax cuts.

The estate tax issue is mostly about emotions and demagogy, not revenue. For that segment of the political spectrum that relies on reviling “the rich,” it serves as a great tool to appeal to the envious. But even before the Bush tax cuts, the estate tax generated a negligible percentage of federal revenues (about 1% I think), and probably cost the federal government more than that in lost income and corporate tax revenues due to distortions in economic activity to avoid, evade and minimize it.

If maximizing tax revenues while minimizing economic distortions were the primary goal of tax policy, politicians on both sides would lose a lot of sound bites, but the government would have enough money and the economy would be a lot stronger.

My income has been taxed multiple times in ONE DAY! It’s horrible this socialism that’s been around since, um, well before my parents were born.

One day I got taxed an extra time 4 different times (3 sales tax, 1 gas tax — I was xmas shopping).

Gold star for clarity. An excellent way to explain it!

Once again, my argument is this: Pretty much all the money in circulation has “already been taxed,” since it’s all been income to somebody at some point. I earn some money for doing my job, I hire a plumber to come and fix my sink, and I pay her with some of the money I earned. To say that she shouldn’t have to pay income tax on the money because I already paid income tax on the same money would be absurd. The plumber and I are different people, so there’s nothing inherently wrong with taxing the money once when it’s income to me and again when it’s income to her.

With the estate tax it’s the same. My parents and I are different people, so they pay tax on the money when they earn it, and I pay tax again when I receive it as an inheritance. And if I use some of *that* money to hire a plumber, she *still* has to pay income tax on it. See how it works?

But the problem with the estate tax is that it presumes that the government has a right to confiscate an arbitrary component of an estate that has already been taxed.

Say I have a great job, and by the time I die at age 80, I have $5 million in my bank account. Not stocks or bonds, not sheltered in a Roth IRA or anything, just cash in a bank account, that I saved AFTER paying income tax on it. The estate tax will take a portion of it, even though I’ve already paid tax on it.

The only reason they can get away with this gross injustice is because I’m dead, and not around to complain. It’s patently unfair and a gross perversion of government authority. THE MONEY HAS ALREADY BEEN TAXED! in what universe is it fair to tax it AGAIN?

The estate tax has been changing year to year because is what Bush & the Republicans did in 2001. They passed the Economic Growth and Tax Relief Reconciliation Act of 2001 (also commonly refered to as the “Bush Tax Cuts” ) so that the estate tax changes phased in over a few years. But the law only changed the rates for 2002 to 2010 and had a ‘sunset’ provision so it didn’t go past that.

Before 2001 the estate tax rate had not changed at all since 1984. The exemption did nothing but go UP which is what we should reasonably expect it to do over time due to the impact of inflation.

If all those needs are met, you are not poor, but you might not have as high a standard of living as those surrounding you, or that you would like.

Was this question ever answered?

However, many people will probably still have a chunk of cash to leave their children when they pass, assuming they saved responsibly in preparation for the uncertainties of old age. This might not be the situation for Q7, but parents should balance the benefits of sharing wealth with their young-adult children today against the benefits of being prepared for medical expenses, unusual longevity, and other unknowns of old age for tomorrow.

I appreciate your comment, but one of the definitions of Socialism is “An economic system based on state ownership of capital.” Thus, in discussion the state’s confiscatory treatment of estates (that is, they’re going to take some, and THEN whatever’s left can be distributed according to the deceased’s wishes), I think the term is applicable here.

But in general, I agree with you that the term is thrown around a little too loosey-goosey these days. I just think it was actually justified in my example.

Part of the thing that bugs me about the whole estate tax is how much and how frequently it changes. It seems both the exempt amount and the percentage taken can vary wildly from year-to-year. If it was a clear-cut case of what’s “right”, why does it change so drastically? To me, this gives it an appearance of not being a case of fairness at all, but rather a case of how much the government thinks they can get away with.